My first earnings short-squeeze play is packaged food player Diamond Foods (DMND - Get Report), which is set to release numbers on Tuesday after the market close. Wall Street analysts, on average, expect Diamond Foods to report revenue of $216.75 million on earnings of 8 cents per share.
The current short interest as a percentage of the float for Diamond Foods is extremely high at 34.3%. That means that out of the 18.09 million shares in the tradable float, 5.91 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 5.1%, or by about 286,000 shares. If the bears get caught pressing their bets into a bullish quarter, then shares of DMND could easily explode sharply higher as the bears rush to cover some of their bets.From a technical perspective, DMND is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending strong for the last month, with shares moving higher from its low of $23.17 to its recent high of $31.09 a share. During that move, shares of DMND have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of DMND within range of triggering a big breakout trade post-earnings. If you're bullish on DMND, then I would wait until after its report and look for long-biased trades if this stock manages to break out above its 52-week high at $31.09 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 376,303 shares. If that breakout kicks off, then DMND will set up to re-fill some of its previous gap-down-day zone from early 2012 that started near $40 a share. I would simply avoid DMND or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below some key near-term support levels at $29 to $28.54 a share with high volume. If we get that move, the DMND will set up to re-test or possibly take out its next major support levels at its 50-day moving average of $26.62 to its 200-day moving average of $23.10 a share.